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USDA, trade guesses 2m apart

JUST how big is 2 million acres? That is a question the trade will be pondering this week, because that's how far apart the U.S. Department of Agriculture's latest planting estimate is from the average pre-report trade guess.

For the sake of argument, 2 million acres is roughly the size of the combined areas of the state of Rhode Island and American Samoa. Put another way, it's roughly the amount of corn planted in Texas and about half of the area planted to corn in Kansas.

Many traders distrust USDA data on some level, and questioning the department's data is something of a favorite pastime in the industry. USDA's June 30 "Acreage" report did little to quell that skepticism, USDA corn planting estimate of 97.38 million acres, more than 2% larger than traders had anticipated and slightly larger than last year's final planted acreage (Table 1).

If the estimate is anywhere near reality, it would mark the largest corn planting since 1936.

That's the trouble, though; the estimate doesn't seem terribly realistic. In a year when planting was significantly delayed, most farmers and industry analysts were assuming that USDA would report a good-sized shifting of corn acres to soybeans, with a sizable revision to the March 30 "Planting Intentions" report.

Instead, USDA doubled down, estimating that farmers planted MORE acres of corn AND more acres of soybeans than reported in March.

Reacting to the report on Twitter, a number of analysts predicted an outcry for USDA to resurvey corn acreage this month. Bearing in mind that the acreage report is an estimate of planting as of June 1, and given that farmers were planting right up until final crop insurance planting date, it would be logical to think that producers may not have gotten every acre planted.

Based on the past 20 years of data, USDA's National Agricultural Statistics Service said its June acreage estimate usually differs from the final estimate by roughly a half-million acres. In five of the past 20 years, the estimate has been smaller than the final figure, and in 15 of those years, the estimate has overshot the final figure — something one might reasonably assume has occurred again this year.

Credit USDA for being optimistic, perhaps.

In predictable fashion, the corn market opened lower on the massive acreage estimate, although an hour after the report was released, new-crop prices were down only 20-25 cents/bu. Prices did weigh on old stocks, though, which should have been moving swiftly higher on a bullish quarterly stocks report.

For soybeans, USDA estimated that farmers planted 77.73 million acres, what could become the largest planting on record. Planted area is estimated to be 1% larger than last year; the estimate lined up squarely with what traders had expected heading into the report, although those estimates assumed that soybean acres would accumulate at the expense of corn.

Again, taking the data without the proverbial grain of salt, one could be expected to credit the march of technology for this seemingly miraculous feat, suggesting that as soon as the weather broke in mid-May, farmers and their precision-guided machines simply got the job done as quickly as possible.

Still, this is not out of the realm of possibility.

Unfettered demand

In late June, University of Illinois agricultural economist Darrel Good posed the question, "Have small U.S. soybean supplies finally been rationed?"

Smaller-than-expected crops in two consecutive years led to a major need to ration available stocks of soybeans over the past year.

"The USDA estimate of June 1 stocks of soybeans will provide an important benchmark for verifying the supply of soybeans available for export or crush during the final quarter of the marketing year," Good explained in a note June 24. "The magnitude of March 1 stocks and estimates of consumption in the March-May quarter should result in a June 1 stocks estimate near 438 million bu. Any substantial surprise in the size of that estimate could mean that the pace of consumption would have to slow even more than (previously) calculated or that supplies are more abundant than projected."

Good's estimate of 435 million bu. was pretty close to on the money — smaller than the average trade guess of 442 million, but not by much. Stocks have been rationed but remain extremely tight in the historical sense.

In fact, the volume of soybeans left in the pipeline at this point in the marketing year is roughly 35% smaller than the June 1, 2012, stocks estimate (Table 2). That comparison reflects not only the significance of the 2012 drought but also how critical it is for U.S. producers to see a return to near-trend yields this harvest.

Looking at corn stocks, the June 1 figure of 2.764 billion bu. came in nearer to the low end of analysts' estimates than to the average guess; stocks are down roughly 12.2% from June 1 last year.

While corn export demand (and, perhaps, even domestic feed demand) has slipped appreciably, the reality is that the U.S. corn market, as with soybeans, needs to see either pretty solid yields this harvest or USDA's exuberant acreage estimate coming to fruition.

Balance to return

In its 2013-14 "Food Outlook" released last month, the U.N. Food & Agriculture Organization predicted that global commodity markets are set to return to some manner of normalcy in the coming year. Prospects for abundant grain production, namely a record cereal harvest of 2.46 billion metric tons, should calm the grain markets considerably.

The FAO cereal outlook projects a 6.5% increase from last year's drought-withered harvests, supported by higher global wheat outlook and a sharp rebound in U.S. corn production. The latest indicators point to a more comfortable supply and demand balance, the organization said, allowing prices to ease in the coming months.

Total global cereal utilization, meanwhile, is also projected to increase roughly 3%, to 2.4 billion mt. Much of that demand growth is expected to come from increasing feed usage in the U.S., although feed use in the developing world is expected to outpace use in the developed world for the second consecutive year.

Based on current FAO projections, by the end of the 2014 growing season, global grain stocks could reach 569 million metric tons, an increase of 11% and the largest stocks in 12 years. Similarly, the International Grains Council, during its June meeting in London, England, forecasted a 7% increase in total global grain production and a 33 mmt recovery in season-ending stocks.

As noted more than once since planting started in the U.S., should farmers plant the acreage USDA has projected and Mother Nature behave somewhat normally this summer, production will rebound, stocks will be replenished and prices will most certainly slide.

Germany-based oilseeds analyst Oil World noted last week that prices for soybeans and other major oilseeds are likely to fall considerably in the coming months.

"Price prospects are bearish for oilseeds, with considerable downside potential in soybeans, sunflower seed, rapeseed and linseed in new-crop positions," Oil World said.

The global soybean crop is projected to reach 284.2 mmt based on bumper crops in the U.S., Brazil and Argentina. Soybean prices, accordingly, will likely fall to a four-year low, the firm predicted.

Ahead of USDA's June 28 reports, Statistics Canada also released its projection of planted acreage, reporting that Canadian farmers planted fewer acres of wheat than expected but more acres of canola this spring. Statistics Canada said farmers planted 25.9 million acres of wheat, the largest plantings in 12 years despite coming in below the April forecast.

Canola seeding, meanwhile, fell 8% from last year's record high but, at 19.7 million acres, was larger than the April Statistics Canada report had predicted. By and large, traders had anticipated both figures and were not terribly shocked by the report.